The Future of Renewable Energy to TPP Countries

January 20, 2016

Adam O’Malley is ITA’s Director of the Office of Energy and Environmental Industries

The renewable energy industry remains one of the most dynamic, fast-changing and transformative sectors of the global economy. Bloomberg New Energy Finance predicts that renewables will account for about 60 percent of new generating capacity installed over the next 25 years. This market penetration—along with technology advances and reduced production costs that are quickly moving the sector toward grid parity—underscores the important contribution of renewables to economic growth. Presently, we are seeing an intense demand for these technologies in overseas markets, particularly in the Asia Pacific region.

U.S. energy product exports to the world grew by seven percent between 2009-2014

Overall, U.S. energy product exports to the world grew by seven percent between 2009-2014. This number could be even higher, but the daunting reality of tariffs and service barriers have dampened demand for products such as turbines, solar cells, static convertors, civil nuclear equipment, and high-voltage electric conductors. In some markets, many energy products currently face tariffs as high as 30 percent. In 2014, 36 percent of U.S. energy products exports went to countries in the Trans-Pacific Partnership (TPP) region.

Thanks to the recently completed negotiations of the Trans-Pacific Partnership, once its enacted, exporters will no longer face many of these barriers when doing business in the 11 partner countries. The TPP will reduce the cost of exporting, increase competitiveness of U.S. firms, and promote fairness and transparency. For example, the renewable energy industry will save $24 million each year as countries such as Japan, New Zealand, Vietnam, and Brunei will eliminate import taxes on nearly all of U.S. energy products exports immediately once the agreement is enacted. The implementation of strong intellectual property rights protection and enforceable labor and environmental obligations will also bolster U.S. competitiveness in the TPP region.

Our partner countries are calling on U.S. businesses to support new renewable energy projects with innovative products and services. As a result, the International Trade Administration (ITA) is providing American exporters with the tools they need to meet this demand.

ITA’s Industry and Analysis division recently produced the Renewable Energy Top Markets Report, a market assessment tool designed to help U.S. companies identify markets of opportunity and inform their export strategies related to renewable energy products and services. The report ranks top export markets, features case studies on key markets and identifies areas of opportunity and challenges faced when exporting to TPP partner countries including Canada, Japan, Chile, and Mexico.

Canada ranks No. 1 on ITA’s list of top renewable energy export markets for the second year in a row. During the next two years, Canada will account for nearly one-fourth of all U.S. exports in the sector. Canada’s national commitment to greenhouse gas reduction suggests significant clean energy investment through at least 2020. This means more opportunities for U.S. exporters. This TPP partner has undergone dramatic changes in its energy sector during the past few years, and is expected to rank sixth in installed renewable energy capacity through 2016.

Chile is one of the few markets that should support exports in each renewable energy technology, although solar is expected to dominate the export opportunity landscape, including both photvoltaic and concentrated solar power. Chile urgently needs to increase its energy output to meet expected demand growth. Luckily, Chile enjoys one of the world’s strongest resource bases for renewable energy and Chilean policymakers have made a firm commitment to support clean energy investment. Chiles’s open economy combined with its lack of domestic manufacturing capacity for renewable energy goods indicate that as development occurs, U.S. exporters will find considerable opportunity.

Japan ranks first on ITA’s list of top solar export markets. The market does not impose any local content policies or import tariffs and thus, U.S. exporters benefit from a market in which they can compete fairly with foreign and domestic suppliers. Licensing solar technologies to Japanese companies or providing equipment to manufacture solar panels are two market segments with potential export opportunity. A further opportunity may result from the sharing of best practices associated with financing off-grid solar. In particular, solar leasing arrangements may find a ready market in Japan thanks to the country’s well-established financial sector and growing demand for roof-mounted photovoltaic.

Ongoing energy sector reforms make projecting renewable energy exports to Mexico challenging. However, perhaps no market offers as much potential for future U.S. renewable energy exports as Mexico. Mexico’s proximity to the United States and its abundant renewable energy resource base indicate the potential for significant U.S. exports. Wind projects continue to command a large portion of clean energy investment in Mexico, attracting over $1 billion alone in 2014, nearly half of total clean energy investment within the country. As Mexico currently lacks a full wind supply chain, U.S. suppliers are well positioned to participate in this future growth. U.S. firms are encouraged to participate in the Mexican market, working with local colleagues to both shape the new regulatory environment and benefit from an important first-mover advantage.